Vivendi Snubs Minister by Choosing Tycoon Drahi for SFR Sale

Vivendi SA (VIV), after weighing competing offers for its French wireless carrier SFR each valued at more than $20 billion, will start exclusive talks with billionaire Patrick Drahi’s cable holding Altice SA. (ATC)

The discussions will last three weeks after Altice offered 11.75 billion euros ($16.3 billion) in cash and a 32 percent stake in the enlarged company to Vivendi, Paris-based Vivendi said today. Bouygues SA (EN), the construction and media conglomerate led by Martin Bouygues, had also bid for SFR to combine it with its own mobile-phone operator Bouygues Telecom.

By picking Altice, which is seeking to merge SFR with its cable provider Numericable SA (NUM), Vivendi is choosing the option that is more likely to pass antitrust hurdles because it keeps the number of French wireless carriers at four. Still, French Industry Minister Arnaud Montebourg supported the Bouygues bid, citing that company’s pledge to conserve jobs.

“This is the better choice all-round,” said Conor O’Shea, an analyst at Kepler Capital Markets in Paris. “It’s good that Vivendi showed it can resist political pressure. This is another example of politicians talking with little impact.”

A Bouygues representative declined to comment. Drahi said in a statement he’s pleased with Vivendi’s decision.

Government Pressure

A deal could surpass Actavis Inc.’s agreement to buy Forest Laboratories Inc. in value, making it the second-biggest acquisition announced this year, according to data compiled by Bloomberg. Comcast Corp.’s bid for competitor Time Warner Cable Inc. is the largest. An acquisition could also provide one of the biggest financing deals to loan bankers in Europe this year.

Vivendi’s board met today to discuss the two offers. It will convene again in three weeks to examine the next steps and “decide if it should put an end to the other options envisaged,” Vivendi said in a statement.

Vivendi and Drahi are likely to discuss amendments to their agreement to alleviate the government’s concerns and win competition authorities’ approval. Vivendi and Drahi have to convince officials that the deal won’t create unfair competition in fixed-line telecommunications and in TV-content distribution.

State Pressure

Vivendi’s merger plans could create an “unbalanced competitive position” on networks and content distribution that calls for remedies, Orange SA (ORA), France’s largest phone company, said in a statement.

While Vivendi Chairman Jean-Rene Fourtou, 74, may be more focused on financial returns and a timely exit from SFR, President Francois Hollande and his advisers have asked Vivendi to agree to a set of social considerations, said a top state official, asking not to be named citing government policy.

Fourtou, who will hand over the chairman position to Vincent Bollore this year, is trying to deliver on a promise to investors that he’ll divest phone assets. Altice’s offer includes conditions for Vivendi to exit the combined company.

Yet, Fourtou has to consider the government’s opinion just as Vivendi shifts its business toward French-focused pay-TV unit Canal Plus, in a tightly regulated industry, said another person familiar with the matter, who asked not to be named because the discussions are confidential.

Keeping Jobs

Keeping jobs in France -- SFR employs more than 9,000 people -- investing in the country’s networks, and providing full financial transparency of all holdings involved in any transaction make up a “red line” that shouldn’t be crossed, the government official said.

The government will be vigilant on jobs, investments, telecommunications prices and services offered to customers, said a representative for Benoit Hamon, junior minister for consumer affairs.

Choosing Altice’s bid would be risky for France because of a high level of debt Drahi would bring to the combined entity, Montebourg told Europe1 radio station today as he repeated his support for the Bouygues offer.

“We know Mr. Bouygues and he said there wouldn’t be job cuts,” Montebourg said. “The state is not the owner of the one or the other. The state expressed a preference. There are some problems: overwhelming debt, no competition in cable, fiscal problems. We are going to solve these problems now.”

Guernsey Company

Drahi will have to bring all his assets to France, the minister said. Drahi, who has a net worth of $6.5 billion according to the Bloomberg Billionaires Index, controls his stake in Luxembourg-based Altice through Next LP, a holding company based in the Bailiwick of Guernsey, a U.K. crown dependency.

Although the minister’s position doesn’t represent the rest of the government, the rationale behind his support is shared by Hollande’s entourage, the official said.

The deal will need to be approved by France’s competition watchdog and telecommunications regulator. Vivendi and Drahi can officially set off the regulatory process by notifying their plans to the competition watchdog whenever they deem ready. The watchdog will examine the deal in phases, with the first phase theoretically lasting for a little more than a month.

In a letter to French ministers dated March 12, Drahi made promises on jobs, investments and favoring equipment made in France. Drahi won’t change SFR nor Numericable’s pricing strategy, he said in the letter, a copy of which was seen by Bloomberg News. Bouygues has made a similar set of pledges.

A sale to Altice would mean Vivendi scrapping a plan to distribute SFR stock to shareholders by July 1. Vivendi is being advised by Citigroup Inc. and Lazard Ltd., while Numericable tapped JPMorgan Chase & Co. and Morgan Stanley. Bouygues worked with HSBC Holdings Plc and Rothschild.